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Other Articles from The Villager

Raising Capital

Mon, 10 November 2014 04:54
by Mr. T
Columns

One of the keys to success as an entrepreneur is your ability to raise capital. In addition, it’s often said that the key to raising capital is a person’s ability to sell. However, most a time we blame our banks for not helping us when in fact we will not have helped the bank. The question is, “What are you selling?” I am not talking about your product but what you show to the lenders, banks, or investors.
The key to raising money, whether it’s to start or expand your business or to purchase and operate a Cuca-shop, comes down to at least the following factors. Either your Project, your Partners, the amount of money needed to run the project and the management team that will run with the project.  If those four are misaligned forget and smile you will struggle to make it no matter what. Address these four points clearly and confidently and your investors are likely to buy in. If you can show a prospective lender or investor that you have command over these four pieces of the puzzle, then selling will not be an issue, and you will attract more money than you thought possible will.
Let’s take a closer look at these four key factors, and some of the questions investors and lenders will be asking.
Project
Investors and lenders need to easily understand what you’re asking them to give money for. Keep it simple. Keep it concise. Keep it real. What is the project that the lender or investor is providing you capital for? I have lent from my previous boss that the guy when you come with a project just ask you few question and will let you know that your project is worth his time or not.
If it’s your business, then what exactly is your business?
What makes your business unique from others in your industry?
What advantage does your business have that will build the investor’s confidence?
What will make it successful?
Answer all this question in your business plan or in your presentation you are assured that they will be asked and the lender will get comfort in getting the questions answered before they ask them.
Partners
Sometime ago I wrote about Partners. I have a guy that I know who says if he meets you today and you tell him a brilliant idea straight away he go and register a CC and say let’s move on. For those of you who are spiritual you know you can’t just do business with anyone you have to have common goal and pulling from the same direction. Put yourself in the investor’s shoes for some perspective. Whose music project would you be more likely invest in—Tate Buti`s or Harry Simon? Whose bank will you bank with—SME or Nandos? It’s not rocket science. It’s common business sense. The experience that the partners bring to the table, and how comfortable the investor is with their level of expertise, are what will drive any investor’s decision.
Questions that need to be answered:
Who are the key partners behind the project?
Who is putting the deal together?
What experience do the partners have?
What is their track record?
Financing
Show me the real numbers. If you have watched the Dragon, people who win money are people who show the numbers, your customers your revenue, expenses and bottom line Return on Investment. This is obviously a bit trickier for a start-up company because most of the revenue numbers will be projected numbers, not actual numbers. This is where previous experience can overcome that obstacle. Show the investor, as accurately as you can, how the project, be it a business or an investment, will make money. Be realistic. Investors do not want to see the best-case scenario. They want to see the most realistic numbers, including the problems and roadblocks ahead. Every business and investment project has problems. Pretending that yours won’t make mistakes makes you look like an amateur or you are lying. How much money are you raising in total? Where is the money coming from? Is the money being raised from private parties, traditional lenders, pension funds, or government programs?
What are the terms? For example, let’s say I’m being approached for the down payment on an apartment building. I’m told the other 80 percent is coming from a top lending institution. What would be more attractive to me as an investor—are you borrowing the 80 percent at a lower interest rate that must be refinanced in two years, or getting the 80 percent at a slightly higher fixed rate for 25 years? The first option presents more unknowns down the road while the second scenario has fewer potential surprises.
How are you going to use the money being raised? Is it to buy a Range Rover, ML or to buy stock. Isn’t it going to pay salaries for blotted employees and eat everything that is supposed to go to the bottom line. What are the funds being allocated to? One hint: If it’s ever suggested that some of the money raised is to pay you, as the owner of the business, or the deal, then most doors are closed.  If you want a salary, get a job.
And, of course, you must answer these two key questions for your potential investor: How soon until he get his/her initial investment back? What is the return on the money?
The bottom line: Is your financing structure attractive to an investor?
Management
One of the greatest investment gurus Warren Buffet once said he buys a company, which he knows who manages it. It’s said, money follows management. If you disagree, check all good leaders where they go, they always make money and bad one nxaa. I agree. However, your case is so much stronger when you address all four components, not just management. Investors want to know who’s running the day-to-day operations. This is key to the ongoing success of any venture. There will throw these questions; what is the experience level of the management team? Who are they? What are their backgrounds? What makes them vital to the success of this project or business? If you are starting your own business or if you’re raising money to grow your existing business, then the partners and the management team may be the same people. That’s not a problem at all, as long as the investor has confidence in the experience and expertise of the team. If you can show value for these four factors, you’ll be light years ahead of other entrepreneurs looking to raise money…and you’ll have a greater chance for success!